Anyone applying for a loan must provide regular information about themselves and their economic situation: The bank as the lender must be able to check and know the identity and place of residence of the future borrower – this means that the applicant is of legal age and resides in Germany. In addition, he should have a regular income. In order to understand these basic requirements of the lending business, it makes sense to take a look at the basic legal regulations.
The loan contract – security for everyone involved
When a loan is paid out, a loan agreement has been concluded between the bank as the lender and the applicant as the borrower. This is a mutual contract: each contracting party is therefore obliged to provide a service: the bank pays the loan amount and the other party undertakes to repay this amount in fixed installments (plus the agreed interest) – the monthly installments. While the debtor receives “everything at once”, the bank has to wait – and often for many years: And in these many years a lot can happen, the economic situation of the debtor can deteriorate – until it becomes impossible for him to repay it . The bank tries to minimize this risk.
The bank’s auditing process as a donor
For this reason, the bank as the lender checks very carefully whether and to what extent the borrower will be economically efficient at the time the loan is applied for – and also in the future. First of all, proof of your own regular income is required. The debtor should be able to work for at least six months with an employer and be able to provide the relevant proof of income. It is also necessary to state whether there are other liabilities – other loan agreements, maintenance obligations and others. The bank then uses additional criteria of its own to check whether and to what extent the desired loan amount, the corresponding installments and the economic situation of the applicant are in a positive relationship: Simply put, the installments must not “grow over the future borrower’s head” and he must remain able to meet all of its usual obligations.
A loan without your own income – by no means hopeless
If you want to apply for a loan without income, you will first fail on this condition: because without your own income, repayment seems impossible. And the bank will not get involved in temporary jobs, such as semester vacations for students, because the risk is too great. However, getting a loan is not impossible. The path leads through a guarantee or additional collateral.
As part of the guarantee, there is another contractual partner on the borrower’s side who has a regular income and can prove this. The latter undertakes to stand up for the other person’s loan debt. The other option is to offer the bank a security that it can sell if the loan is not repaid. Anyone who is the owner or co-owner of an apartment, house or property can register a land charge in favor of the bank in the land register, which grants the bank the right to access the property if necessary. The prerequisite for this, however, is that real estate is not burdened or not burdened too much. Pledging assets is also conceivable as security – however, competent legal advice should be sought here.
The credit bureau is always there
In parallel to all of this, the bank is authorized under the credit bureau clause to obtain further information from credit bureau about the contractual partner’s previous and expected payment behavior in the future. If the credit bureau information is negative, the bank will reject the loan application. If there is an increased risk, this usually has an impact on the drafting of the contract: it is often necessary to take out residual debt insurance in order to minimize the bank’s risk. And the interest rate usually increases with increasing risk – or decreasing creditworthiness – this also affects possible guarantors.
Thorough preliminary information is always good
If you want to increase the chance of concluding a loan contract, you should estimate your current costs accurately and realistically and rather lower the loan amount. And in order not to be surprised by the credit bureau information, it makes sense to request an excerpt in advance: You can do this once a year free of charge and you should also check the entries – requests for deletion of incorrectly entered data or data that is out of date are possible.
The better prepared you turn to the lender, the faster – and often the more positive the examination process will be.